Cash lump sum

Cash lump sums

It has always been possible to take 25% of your pension pot as a tax-free lump sum but now everybody can take the remaining 75% of their pension pot as a cash sum, but it will be taxed at your marginal rate.

The most important thing to understand about cash sums taken over your tax-free amount is that they will be taxed as income at your marginal rate. Therefore, if you take a large cash sum you could end up paying higher rate tax. Remember that your provider will deduct tax at source, which means that you will only receive the after-tax amount.

Money Purchase Annual Allowance (MPAA)

This can be complex, but if you take more than 25% of your pension pot (e.g UFPLS) or take income from a flexi-access drawdown plan, and you are still paying into a money purchase pension, the MPAA will apply.

You will be subject to a tax charge if your total money purchase pension contributions exceeds £4,000 per tax year.